To Credit Card or Not…
The question of whether or not to accept credit cards is one most managers/owners question for their business operations.
Questions to consider are:
- What is the cost of accepting credit cards?
- What is the average length of time it takes for a customer to pay their bill if I invoice them?
- What is the time spent by personnel to invoice and follow-up with clients regarding payments?
- Will my clients be accepting of this type of payment versus the traditional invoicing and/or cash/check only policy?
- Is there a credit card processing company interface with my current bookkeeping and/or point of sale system?
Implementing a policy of accepting credit cards for your business does have some implementation and ongoing operational costs, so it pays to check around. Most credit card processors charge an initial set-up fee along with an ongoing monthly base fee plus percentage of charge. Each processing company has their own calculations and rates based upon the types of transactions you will have, the amounts of the transactions and the types of cards you receive. For example, American Express and Discover process separately from Visa and Mastercard and the rates you are charged are different as well. In addition, cards that provide perks for their owners are normally more costly for the business who receives the payment. You should also be aware that some credit card processors also insist that you sign a contract that outlines a penalty if you cancel before the contract date.
Time is money; if your business model is such that accepting credit cards minimizes the waiting game then you may be ahead by processing payments with credit cards versus waiting for invoice payment remittals. Average businesses invoice monthly with payment remittals being anywhere from 30 to 60 days. So it makes sense for some businesses to be able to get their payment immediately, versus having to wait. Accepting credit cards, while having a cost associated with it, often improves your cash flow because you are processing credit cards regularly versus the wait of invoice payments.
Anytime you invoice customers, there is always a chance of delay in payment or no payment at all. While we try to ensure that our customers will have the ability to pay us for our goods or services, there is always a risk that for whatever reason, they do not pay. Having a credit card payment program helps minimize the risk that you will not be paid. Now be assurred, there is the right that if the client feels they are wrongly being charged, they can be able to refuse the charge through their credit card company; however, this is less likely then receiving a bad check or no check at all.
Of course your clients have to be willing to accept this method of payment and not all business models lend themselves well to a credit card payment policy. Obviously those businesses who have very large dollar items will be less likely to implement this type of policy then those who are in retail or service businesses and offer small to middle sized priced item offerings. Though understand that thinking outside the box is okay. You might be in an industry where it is not common place to accept credit cards; however, that doesn’t mean it might not be workable for you.
Different credit card processors offer a variety of ways for processing; which include over the telephone, Internet, etc. so ensure that you understand how you will process your credit cards. It also matters whether your clients are present with their cards or you will be manually entering the credit card information. The equipment as well as the costs is impacted by these choices.
Bottom line is to ask yourself if the benefit outweighs the costs. If you accept credit cards will the increase of your sales and decrease of your collection time be more advantageous then the cost of the processing fees?
Pam Newman, Author, Speaker, Certified Management Accountant, Entrepreneur, Advanced Certified QuickBooks ProAdvisor – Financial, Enterprise and Point-of-Sale, President of RPPC, Inc. www.rppc.net, pam@rppc.net , 816.304.4398.
